Is it the imminent arrival of autumn? A cold wind is blowing on the financial markets. With the exception of Wednesday’s burst of pride, the Bedroom 40 has just accused its seventh session of decline in eight trading days, losing 1.87% Thursday. At 5,918.50 points at the close, the Parisian index is at its lowest level since July 6. Across the Atlantic, the trend is just as gloomy and chilly, the S&P500, which traditionally serves as a benchmark for managers, is now down 22% since its last high in January. And what about the Nasdaq Composite ? The index of technology stocks is suffering from massive rate hikes by central banks, synonymous with lower profits for growth stocks. Since the beginning of the year, it has lost around 30%.
” We need to leave inflation behind »
On Wednesday evening, the American Federal Reserve (Fed) stuck to the script, raising, as expected, its key rates by 75 basis points, for the third time in a row, to bring them within a range of 3% to 3.25%, but it delivered a “hawkish” message at the same time. ” We need to leave inflation behind “, hammered its president Jerome Powell, suggesting difficult days for households and the economy. ” There is no painless way to achieve this “, he repeated. The new projections therefore confirm that further rate hikes are in the pipeline, to drive the cost of money to 4.4% at the end of 2022, and even 4.6% at the end of 2023.” This implies a further 75 basis point move in November, followed by a 50 basis point move in December, although the accompanying dotted chart suggests the committee is still balanced between 125 and 100 basis points. base for further tightening this year “, analyzes Michael Pearce, senior economist United States at Capital Economics. This aggressive policy will inevitably weigh on growth. The Fed has not hidden these secondary effects: GDP growth will not exceed 0.2% this year and 1.2% in 2023. The unemployment rate could rise from 3.7% currently at 4.4%. Finally, inflation projections have been revised up slightly for this year and next, although the Fed still expects core inflation to fall to 2.3% by 2024.
It’s not just the Fed that is tightening the screws in the face of galloping inflation, the BoE (Bank of England), the SNB (Swiss National Bank) and the Bank of Norway too. All three opted for a 50 basis point hike and reaffirmed their determination to fight inflation. ” If the outlook were to suggest more persistent inflationary pressures, including in relation to stronger demand, the Committee would respond forcefully, as necessary. “said the BoE in a statement. Across the Channel, inflation should remain above 10% at an annual rate for several months before receding, according to forecasts from the institution, which suggested that the United Kingdom is already in recession. In this landscape, the Bank of Japan (BoJ), which is maintaining an accommodative course, is an exception.
The string of monetary tightenings are taking place against a backdrop of rising geopolitical risks. Faced with the mobilization of reservists and the nuclear blackmail exercised by Vladimir Putin, the countries of the European Union are considering new sanctions and an increase in arms deliveries to Ukraine. In the market, this is weighing on equities generally, but benefiting, in particular, stocks related to defense and commodities. On the foreign exchange side, the dollar is doubly boosted by geopolitics and the monetary policy of the Fed: the greenback is trading at 0.9818 against the euro, for the first time since the end of October 2002, less than a year after the official changeover to the single currency.
Voltage drop on tech
On the values front, technology companies, which rely heavily on borrowing to finance their growth, are weakened. Capgemini, Teleperformance and STMicroelectronics fell between 3.45% and 5.96%. Also down, the video game publisher Ubisoft dropped 6.75%, weighed down by a deterioration in Stifel, which went from “buy” to “hold”. The hotel group Accor fell by 6.87%, victim of a degradation of JPMorgan, which goes from “neutral” to “underweight” with a new target price planed by 41%, to 21 euros.
Conversely, M6 gained 6.37% following information from the FinancialTimes that the German media group Bertelsmann has requested indicative offers for its 48.3% stake in the French channel after the failure of the merger with TF1. According Reutershe would expect non-binding purchase offers no later than Friday.
Finally, Veolia Environment (-1.06%) announced the sale to Suez of the British waste activities of Vigie (ex-Suez SA) and the signing of a purchase agreement by which Suez undertakes to acquire 100%% of Suez Recycling and Recovery UK, for 2 billion pounds (2.29 billion euros).